Heavy Metal

Seeking to Double Profits, Cost-Cutting ThyssenKrupp Forges Ahead

Heavy metal in Duisburg. Source: Reuters
Heavy metal refinery in Duisburg, one of ThyssenKrupp's traditional sites.
  • Why it matters

    Why it matters

    Three-and-a-half-years after taking the reins of Germany’s biggest steel producer, Heinrich Hiesinger is still struggling to get ThyssenKrupp back on track.

  • Facts

    Facts

    • ThyssenKrupp wants to reduce costs by the end of the business year 2014-15 by €2.3 billion ($3 billion).
    • For the realignment, the firm is planning to sell off some business operations.
    • The supervisory board will meet at year’s end to discuss the extension of Mr. Hiesinger’s contract.
  • Audio

    Audio

  • Pdf

ThyssenKrupp has projected earnings before interest and tax of €1.2 billion ($1.6 billion) for the current year, but that is not enough for Heinrich Hiesinger.

The steel producer’s chairman wants to double this year’s operating profit in the medium-term, Handelsblatt has learned from a source close to the company.

It would be the first time in three years ThyssenKrupp has been able to break even. But it would not be sufficient to pay a dividend and again have the financial power for acquisitions. For that to happen, Handelsblatt was told, the company really does need to redouble its consolidation efforts.

Mr. Hiesinger has urged his top managers to focus even more strongly on business development. As this alone will not increase profits to the extent required, ThyssenKrupp is planning further savings. Germany’s biggest steel producer wants to reduce costs by the end of the coming business year 2014-15 by €2.3 billion ($3 billion). The board expects further savings from a closer integration of business divisions.

For the realignment, ThyssenKrupp is planning to sell off some business operations, such as the passenger walkway division. In the long term, even the sale of shipyards for building submarines is a possibility. But that would take another few years, according to the company source.

ThyssenKrupp declined to comment.

A few hardships might be in store for the tradition-steeped company’s 160,000 employees – and its top managers will have to implement these changes. Unused business potential will have to be exploited.

Limited growth

However, growth opportunities are limited. That is why the board is planning further savings. For Mr. Hiesinger, in principle, it is a matter of integrating business units more closely. Resources are to be better utilized, and savings could reportedly be achieved in purchasing, too. Regarding the savings no specific figure was available. Details are still being worked out.

But these further savings, added to the efficiency programs already in operation, are the means with which the company aims to achieve a sustainable decrease in its costs.

Mr. Hiesinger’s appeal to the management team is a wake-up call: Anyone not pulling his or her weight will have to worry about their job. For some, this announcement has had a sobering effect, as they had thought the company was over the worst.  For most, however, Mr. Hiesinger’s words are a motivation.

But Mr. Hiesinger has still not led the company reliably back to profit. As ThyssenKrupp has no financial reserves of its own for large acquisitions, the improvement has to be made from the existing business.

Want to keep reading?

Subscribe now or log in to read our coverage of Europe’s leading economy.